Fra Zerohedge:
In Europe, oil bears sparked some volatility into a historically dull NFP Friday. WTI and Brent Crude futures both trade near session lows, down around a dollar on the session, as an aftermath from the United States’ withdrawal of the Paris Accord has been evident. An increase in US shale oil production could counteract attempts from OPEC and Russia to stabilize prices, with some touting that the US could add up to 1.5mln BPD to global oil production in 2018. The oil selling has resulted in Energy to lag, and the only S&P European sector to trade in the red, down around 0.50%.
The financial sector leads European bourses to trade in the green, with the likes of RBS, Deutsche Bank, Credit Agricole and CS all leading their respective indices. Strong UK Construction PM! data failed to add to the risk sentiment, with traders seemingly brushing off the large beat seen in the figure, as no immediate bullish pressure was seen in the FTSE nor GBP. The risk appetite seen in equity markets has failed to faze fixed income markets, as subdued trade has been clear as we approach today’s NFP report. The Bund future found bids above 162.10, following the gap seen in the futures open, now trading up around 14 ticks on the session, looking towards the gap seen on 21st April..
Top European News
- U.K. Housing Lifts Construction Growth to Strongest Since 2015
- Bank of Russia May Raise GDP Forecast in June, Nabiullina Says
- Evonik New CEO Raises Profit Target, Pledges to Rejig Portfolio
- Renewed OPEC Deal Paradoxically Locked in Oil Slump: Rosneft CEO
- May Considers Replacing Brexit Secretary after Election: Times
- Blankfein Tweets, Iger Quits Trump Council in Climate Fury
- SocGen Sees More Upside for European Stocks on Fundamentals
In currencies, there has been not too much FX price action this morning, as one would expect ahead of the non farm payrolls release this afternoon. What we have seen is largely reflective of the moves seen in the commodity markets, and to that end, the CAD has been suffering as WTI falls to USD47.00 on the implications on US shale production from the US exit from the Paris Climate Agreement. USD/CAD has tested 1.3550, but as we noted first thing, we see strong resistance into 1.3600, some consolidation seen since. EUR/USD continues to hold the low 1.1200’s, as dip buyers are keen not to miss out on the ECB QE taper move —some anticipating a signal next week. 1.1150-60 is initial support lower down should be break 1.1200. USD/JPY continues to hold the mid 111.00’s, as a positive US jobs report will spur a move on 112.00 again.
In commodities, across the board, we see losses in most commodities this morning, with focus on Oil once again as the production levels of US Shale dominate the headlines, and have been exacerbated by the US announcement to withdraw from the Paris Climate Agreement, effectively freeing their hand on output levels. WTI losses have now extended into the low USD47.00’s, and momentum has taken Brent back under USD50.00, completely undermining the attempts by OPEC/non-OPEC week to contain price weakness. Support levels in Light Texas come in around USD46.00-45.0, but the mood has soured significantly, and selling is relentless. This may have contributed to the weakness elsewhere, but metals/iron ore losses are largely based on Chinese demand, and this is back in question after some soft PMI releases. Copper is back under USD2.55, with losses matched in Zinc, while Nickel extends the sell-off through USD9000 to over USD250. This may turn the risk mood sour again, but as yet, little pick up seen in Gold.
Looking at the day ahead, unsurprisingly the focus for today will come this afternoon with the May employment report. As well as payrolls it’s also worth keeping an eye on the unemployment rate (expected to hold steady at 4.4%) and average hourly earnings (expected to rise +0.2% mom and +2.6% yoy). Away from the employment report we’ll also get the April trade balance reading. Away from the data we’ve got the Fed’s Harker and Kaplan both scheduled to speak.
US Event Calendar
- 8:30am: Change in Nonfarm Payrolls, est. 182,000, prior 211,000; Unemployment Rate, est. 4.4%, prior 4.4%;
Average Hourly Earnings MoM, est. 0.2%, prior 0.3%; Average Hourly Earnings YoY, est. 2.6%, prior 2.5%; Average Weekly Hours All Employees, est. 34.4, prior 34.4 - Labor Force Participation Rate, est. 62.93%, prior 62.9%; Underemployment Rate, prior 8.6%
- Trade Balance, est. $46.1b deficit, prior $43.7b deficit
12:45pm: Fed’s Harker Speaks About the Economic Outlook - 1pm: Fed’s Kaplan Speaks in Dallas
DB’s Jim Reid concludes the overnight wrap
Welcome to another payrolls Friday. DB expects a well above consensus 235k print (market at 182k) which Joe LaVorgna notes is supported by a strong 253k ADP print yesterday. He thinks there was evidence of retail jobs stabilising in the report after a difficult period for the sector. Other reasons for Joe’s call is that the four-week moving average of jobless claims during the May survey period was 241k, which was the lowest for any employment survey week since July 1973 (240k). Also he argues that withheld income tax receipts are tracking up close to 7% compared to a year ago, which points to rising income growth. Since tax receipts are a direct function of employment, hours and wages, the recent acceleration in income growth should at least partly be reflected in the pace of job gains. Joe remains less confident in wages, where the growth rate remains soft relative to the sub-5% level of the unemployment rate. After some recent data apathy if Joe is right on payrolls there will be some renewed excitement in markets.
As interesting as today is though, next Friday we may be in need of a cold towel and a lie down as by then it’ll be the morning after the night before in terms of knowing the results of the UK election, digesting a potentially pivotal ECB meeting and dealing with the aftermath of former FBI Director Comey testifying to the Senate Intelligence Committee. A super Thursday. Just on Comey, the Committee confirmed that the former FBI Director will firstly appear in an open session in the morning followed then by a closed meeting with the panel later in the day.
Over in markets, the first day of June was a welcome one as investors dissected a slew of largely solid PMIs in Europe and then the better than expected employment data and PMIs in the US. The S&P 500 (+0.76%) clocked up another new record high and had its strongest day since April 24th. The Dow (+0.65%) also closed at a record high while in Europe the Stoxx 600 (+0.43%) finally brought to an end a run of five consecutive daily declines. The positive tone came despite the news that President Trump is to take the US out of the Paris climate accord which he said was a deal “that punishes the US” at the expense of China and India. That said the President did leave the door open to a possible renegotiation of the current accord on more favourable terms or even a completely new agreement. It was noted though that the UN body that governs the Paris accord has said that the agreement is a historic treaty and “cannot be renegotiated based on the request of a single party”.
Over in bond markets the impact of the data was a small nudge up in the probability of a June rate hike to 88% from 84% just prior to the data based on Bloomberg’s calculator. 10y Treasuries (+0.9bps to 2.212%) stayed range bound while bond markets in Europe were a bit mixed again with Bunds flat, BTPs weaker (+5bps) and Portugal bonds stronger (-5bps). Meanwhile the big mover in commodities again was Iron Ore (-1.84%) which took another leg lower following that soft China PMI print yesterday. After reaching a high of nearly $95/tn back in February, Iron Ore has now tumbled 41% to $56/tn. Away from that Oil ended little changed despite being up over 1.70% intraday at one stage, while Gold (-0.23%) faded a bit.
This morning in Asia the positive momentum from Wall Street last night has largely continued into the Asia session. The Nikkei (+1.63%) has been the big mover, passing 20,000 for the first time since 2015, while the Hang Seng (+0.30%), Kospi (+0.95%) and ASX (+0.95%) have also rallied. Bourses in China are however down about half a percent, perhaps still weighed down by yesterday’s soft PMI. In other news, overnight President Trump has asked the Supreme Court to immediately reinstate his travel ban on six countries. Meanwhile there’s a bit of focus on a Telegraph article last night suggesting that Amber Rudd will replace Philip Hammond as the UK Chancellor should the Tories win next week’s election with a majority. The FX market has largely ignored the headlines however.
Wrapping up, in terms of the other US data yesterday initial jobless claims were confirmed as rising a fairly modest 13k to 248k last week, while construction spending slipped -1.4% mom in April but only after March was revised up to a +1.1% gain from a previously negative reading. Total vehicle sales also declined to an annualised rate of 16.6m from 16.8m. All told the Atlanta Fed have now raised their Q2 GDP estimate to 4.0% from 3.8% previously. The only other thing to note was comments from the Fed’s Jerome Powell. Largely seen as a centrist, the Governor said that he sees two more rates this year as being appropriate but also warned that the Fed must careful watch inflation for signs it is moving closer to target.
Looking at the day ahead, unsurprisingly the focus for today will come this afternoon with the May employment report in the US. As well as payrolls it’s also worth keeping an eye on the unemployment rate (expected to hold steady at 4.4%) and average hourly earnings (expected to rise +0.2% mom and +2.6% yoy). Away from the employment report we’ll also get the April trade balance reading. This morning in Europe it’s pretty quiet with Euro area PPI for April the only release scheduled. Away from the data we’ve got the Fed’s Harker (5.45pm BST) and Kaplan (6pm BST) both scheduled to speak. Finally, UK PM Theresa May and Labour leader Corbyn are to answer audience questions in a special BBC TV programme tonight.
